
§Financing a Firm with Equity
§Expected cash flow = ½($1400+$900) = $1150
§NPV = -$800 + $1150/1.15 = $200
§The project has positive NPV
§If this project is financed with equity alone, equity holders will
receive all of the future cash flows, the PV of which is $1000
§Thus, the firm can raise $1000 by selling the equity in the firm